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THEORETICAL AND LEGAL COMPARATIVE STUDY OF THE LEGAL
NATURE OF A CORPORATE CONTRACT UNDER THE LAW OF
FRANCE AND THE USA
Sattorov Mironshokh Husenovich
Independent researcher
https://doi.org/10.5281/zenodo.14905299
Abstract.
The article provides a comparative analysis of theoretical and
legal approaches and specific features of corporate agreement regulation under
French and US legislation. The spread of mutual agreements between
shareholders in France was facilitated by the participation of Anglo-American
investors in French companies, who were more accustomed to contractual
relations than to the use of strictly fixed forms of joint-stock companies. Despite
the fact that one of the goals of such agreements was an attempt to get rid of
excessive public-law control, such agreements could never contradict the
imperative requirements of the law and the provisions of the company's charter.
In the USA, the legislative consolidation of the right of shareholders to enter into
various types of agreements among themselves is carried out by laws regulating
the activities, procedure for the creation and management of entrepreneurial
corporations. The content of and participation in a shareholder agreement is
determined by the legal regime of the corporation. An agreement of members of
a closed corporation may de facto change the provisions of the charter
concerning the management of the corporation and the division of profits. The
article considers all types of shareholder agreements concluded by members of
an entrepreneurial corporation. State laws governing contractual relations do
not apply to shareholder agreements, despite the doctrinal view that
corporations are contractual in nature. A comparative analysis of the case law,
doctrine, and provisions of the US and French laws leads to the conclusion that
in the US, shareholder agreements are governed by corporate law, and not by
the provisions of the law of obligations, as in France.
Keywords:
corporate agreement, agreement of members of the company,
principle of freedom of contract, right to vote, rights of members of the
corporation, disclosure of information, trade register, comparative corporate
law, confidential information, joint-stock companies, limited liability companies,
business corporation, contract law, obligation, civil law contract
The principle of freedom of contract as a sacred foundation of contract law
in the European civilistic doctrine of the 19th century acquires particular
relevance in modern corporate law. This key principle of the individualistic
philosophy of the Enlightenment, further developed in the works of Ch.
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Montesquieu, T. Hobbes, J. Locke, J. J. Rousseau, I. Kant, G. Hegel and many other
representatives of the classical natural law doctrine, has been discussed by
representatives of foreign and domestic science for two centuries. The analysis
of principles in the philosophy of law is devoted to the works of Russian
researchers - B. N. Chicherin, I. A. Ilyin, N. M. Korkunov. In addition, as R. A.
Emrikh rightly notes, “the appeal to the idea of freedom of contract as a principle
of justification of law is associated with the fact that modern Russian legal
consciousness assimilates a number of ideas (the concept of human rights, civil
society, the rule of law), which are born of the world, mainly Western legal
culture” . Modern conditions of doing business, globalization, integration,
creation of transnational corporations, national and international competition,
emergence of new organizational and legal forms of legal entities, widespread
use of corporate forms of management have determined the need to find flexible
and effective methods of regulating relations between participants of
corporations. That is why theoretical and practical comparative study of the
legal nature of such a flexible legal instrument as a corporate agreement seems
relevant and necessary from the point of view of protecting the rights of
participants of corporations and third parties. The idea of concluding an
agreement of participants of a company arose as a result of the development of
the principle of freedom of contract. In the common law system, before the
emergence of judicial practice containing interpretations of agreements of this
kind and the further normative institutionalization of agreements of
participants, freedom of contract served as the justification for such agreements.
In Brown v. Pacific Mail Steamship Co (1867) , the court held that the parties
were prohibited by the agreement from changing the mandatory provisions of
statutory law establishing the system of governance of the company, but the
court left the agreement without consideration as to the voting procedure,
implicitly upholding its permissibility. Later, in Faulds v. Yates (1870) , the
court upheld the legality of obligating the parties to vote in a certain way.
Turning to the history of the emergence of corporate agreements in French
law, one can notice a strong influence of Anglo-American approaches. In
particular, the spread of mutual agreements between shareholders in France
was largely facilitated by the participation in French companies of Anglo-
American investors, who were more accustomed to contractual relations than to
the use of strictly fixed forms of joint-stock companies. Despite the fact that one
of the goals of such agreements was an attempt to get rid of excessive public-law
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control, such agreements could never contradict the imperative requirements of
the law and the provisions of the company's charter.
Current French legislation does not disclose the legal concept of a corporate
agreement; in literature and judicial practice, such a general concept as a
participant agreement (les conventions sociétaires) is used. At the same time,
participant agreements concluded in joint-stock companies, simplified joint-
stock companies, and limited liability companies have their own characteristics
and may have different names.
Traditionally, the conclusion of agreements between members of a
company under French law is based on the principle of freedom of contract,
taking into account Article 6 of the French Civil Code (hereinafter referred to as
the FCC) , according to which laws concerning the fundamentals of morality (les
bonnes moeurs) and public order (l'ordre public) cannot be changed by private
agreements, and Article 1193 of the FCC establishes that contracts can be
changed or cancelled only by mutual consent of the parties or on grounds
permitted by law.
Analyzing the dynamics of the application of shareholders' agreements in
France, A. Couret notes that, as a rule, “the legality of mutual agreements
between shareholders is not contested (except in cases where they infringe on
public law requirements in the area of shareholder law). The real difficulties are
connected with the practical application of these agreements. Judges try to
encourage such practice, which is evident from the decisions taken. However, at
the moment, practical application remains the weak point of agreements
between shareholders” .
The widespread use of corporate agreements and the problems of their
practical application noted in the doctrine forced French researchers to turn to
the study of the legal nature of the agreement of the participants . The doctrine
proposed a definition of a mutual agreement of shareholders as an agreement,
contract or condition concluded between two, many or all participants of a joint-
stock company, the purpose of which is to provide all signatories with the
opportunity to obtain or retain their own rights or to organize in one way or
another the management div of the company . According to E. A. Sukhanov,
corporate agreements under French law are "agreements on the exercise of
shareholders' rights, and those concerning mainly or even exclusively the right
to vote (conventions de vote). In principle, they can only concern the voting of
shareholders and only at a specific meeting (and not during any period), and are
also subject to other serious restrictions” .
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It should be taken into account that under French law, shareholders'
agreements of a company whose shares are listed on the stock exchange have
their own specific features. Thus, according to Art. L 233-11 of the FTC, the
terms of a shareholders' agreement establishing the rights and obligations with
respect to the disposal of more than 0.5% of the shares or the right to dispose of
0.5% of the votes of a company whose shares are listed on the stock exchange
must be communicated to the company itself and the Financial Markets
Authority (AMF).
The evolution of methods for regulating management and relations
between participants in a company, using the example of the French experience,
allows us to identify not only the tendency to maintain traditional management
methods in a joint-stock company, but also the emergence of two new methods:
regulation based on an agreement between participants and regulation using
recommended norms (soft law).
The legislation of France, as well as many countries with a Romano-
Germanic legal system, does not contain any special rules devoted to the
regulation of shareholders' agreements. However, such agreements are
recognized at the doctrinal and practical levels. As M. V. Trubina rightly notes, in
many Western European countries “the thesis that shareholders' agreements do
not require special legal regulation is almost universally recognized, and that
general rules and principles of civil and shareholders' legislation can be used to
determine the admissibility, legality, content and form of shareholders'
agreements” . The peculiarity of the legal regulation of participants' agreements
under French legislation lies in the obligatory nature of such agreements, which
do not create obligations for the company itself and the participants who are not
parties to the agreements. E. A. Sukhanov believes that "the obligatory-legal
nature of such agreements is not questioned: they are ordinary civil-law
contracts, and not corporate acts” .
Over the past few decades, French researchers have been discussing the
theory of the “golden mean” in corporate law, the idea of which lies in the
optimal relationship between freedom of contract and public order, and,
according to J. Carbonnier, it is freedom of contract that is the legal basis of a
market economy .
The main purposes of concluding corporate agreements are to ensure the
stability of the company's capital, management and control, to reach an
agreement on voting, etc. Despite the fact that a corporate agreement under
French law is regulated primarily by the rules on obligations, the legal
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consequences of this agreement have specifics, go beyond the civil obligation
and are of a corporate nature. In the United States, shareholder agreements are,
albeit sparingly, regulated by corporate law.
Legislative regulation of shareholder agreements in the United States also
did not appear immediately. The appearance first in entrepreneurial activity,
and then in legislation, of agreements of shareholders of an entrepreneurial
corporation is due to a number of reasons, but the main reason was the desire of
shareholders to participate in the management of the affairs of an
entrepreneurial corporation.
In the Uzbek legal reality, the corporate agreement appeared relatively
recently, and its appearance in the legislation was caused by other reasons. First
of all, it is necessary to define the concepts that Russian legislation and US
legislation operate with. In general, they coincide, but the corporate agreement
is called a shareholders' agreement by state laws and the uniform law.
It is worth recalling that the structure of business corporation management
in the United States does not involve shareholders. All management is
concentrated in the hands of the board of directors and the managers appointed
by them. Shareholders are completely removed from making operational
management decisions and have almost no participation in developing strategic
objectives and corresponding decisions. Even before the first state laws
regulating the activities of business corporations appeared, according to
common law, shareholders only had the right to receive a portion of the
corporation's profits in the form of dividends and the right and obligation to
form a board of directors. The courts also secured for shareholders the right to
make decisions on such fateful issues as the liquidation of a corporation, its
merger with another corporation, and the sale of all of the corporation's assets.
Over time, this situation ceased to correspond to the interests of
shareholders, since the strict dictate of the board of directors on issues of
determining the size of dividends and their payment did not contribute to the
growth of shareholders' income. Shareholders could not influence the procedure
for distributing the corporation's profits. Absolute lack of rights, the
impossibility of influencing the distribution of profits, the unfair behavior of
members of the boards of directors and managers, complicated economic
relations - all of these factors led to the adoption by state legislators of special
laws regulating the activities of entrepreneurial corporations. Later, the states
adjusted these laws with the proposed model law on an entrepreneurial
corporation.
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The developers of the model law took into account the current mood of
shareholders and the judicial practice of recognizing agreements concluded by
shareholders aimed at increasing their influence on management decision-
making. The law now includes provisions securing the right of shareholders to
conclude agreements of various natures, as well as provisions characterizing the
type of entrepreneurial corporation provided for by law.
Such a type is a closed corporation. The extension of the norms of the model
law on entrepreneurial corporations to this corporation confirms the fact that
this is not a new type of corporation with qualifying features, but only a type of
entrepreneurial corporation. The existence of a closed corporation determined
some features of the legal status of this type of entrepreneurial corporation and
was reflected in the content of the agreement that shareholders of the
corporation have the right to conclude among themselves. Agreements of
shareholders of an entrepreneurial corporation and a closed entrepreneurial
corporation are aimed at achieving the same goals, but differ greatly in content.
Let's start with the fact that the "general meeting of shareholders" of a
corporation is not called the governing div of a corporation by the laws of
individual states, as well as the model law on a business corporation. Only in the
literature do individual authors sometimes conclude that the general meeting of
shareholders makes certain decisions. The terms "competence of the general
meeting" or "exclusive competence of the general meeting" are not used in
scientific literature and legislation in the United States . The competence of the
general meeting of shareholders in legislation is designated as "shareholders'
rights" and "rights realized by voting on certain issues". State legislators include
the following in the exclusive competence of the general meeting, voting on
which may be the subject of agreements in shareholder agreements:
formation of the board of directors by electing its members;
increasing the authorized capital of the corporation, if this issue is not
referred to the board of directors for decision; development and amendment of
the charter and regulations of the corporation;
leasing, sale or transfer (in the form of reorganization) of all property of the
corporation to a third party, approval of unusual, especially large transactions;
transfer of all property of the corporation to a third party for the purpose of
conducting business activities for a period of time;
corresponding amendments to the charter related to the suspension of
business activities, if this entails a change in the scope of shareholders' rights for
certain types of shares;
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reorganization by merger or through the sale of all assets;
liquidation of the corporation.
The founders have the right to expand the list of issues, the decision on
which is taken only by the members of the corporation at their meeting, by the
corporation's charter.
As we can see, the shareholders' agreement of a business corporation
cannot in any way affect the change in the procedure for managing the
corporation by shareholders or allow interference in the procedure for
distributing the corporation's profits. Of course, legislators have significantly
expanded the rights of shareholders, but this expansion has not brought
shareholders closer to managing the corporation. However, such a statement is
true only in relation to a business corporation, while for closed corporations a
different relationship is established between the provisions of the charter and
the shareholders' agreement.
Unlike the shareholders' agreement of a business corporation, the
shareholders' agreement of a closed corporation may contain conditions that
change the procedure for managing the corporation established by the charter,
as well as the procedure for distributing profits. In other words, the provisions
of the shareholders' agreement of a closed corporation may change the
provisions of the charter of a closed corporation when the procedure for
managing the corporation established by the shareholders' agreement does not
correspond to what is determined by the charter. At the same time, shareholders
of a closed corporation have the right to enter into agreements that do not
change the established procedure for management and distribution of profits,
i.e., those that concern only the procedure for voting at a general meeting on
issues within their competence.
From the above it follows that today state laws provide for several types of
shareholder agreements. The content and number of participants in these
agreements depend on the shareholders of which corporation are concluding
the agreements. At the same time, it is possible to distinguish shareholder
agreements available to shareholders of any business corporation. These
agreements, in turn, are divided into two types.
The first type of shareholder agreement is an agreement on the procedure
for voting at a general meeting on all issues within the competence of the
general meeting. The second type of shareholder agreement is an agreement on
the transfer of the right to vote at a general meeting by shareholders who have
signed the agreement, either to one of the shareholders or to a third party. State
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laws call this type of shareholder agreement a "voting trust." In addition to
shareholders, other persons may also be participants in this type of shareholder
agreement, such as a creditor of the corporation, a trustee of the corporation's
shares, or a pledgee of the corporation's shares or bonds. A voting trust is often
used to ensure the fulfillment of the corporation's contractual obligations. In all
states, the term for which a voting trust may be concluded is limited by law, as is
the transfer of shares by shareholders under an agreement to a trust. Concluding
a shareholder agreement to transfer the right to vote for a longer term than that
established by state law makes this agreement invalid. For example, in the state
of California, according to the current legislation, a voting trust is concluded for
a term of no more than 10 years.
The third type of shareholders' agreement, provided for by state laws, is
available only to shareholders of a closed corporation. It is this type of
shareholders' agreement that enables shareholders to change the order of
corporation management, establish the order of profit distribution, and limit the
powers of the board of directors. State laws contain a list of provisions of the
charter that cannot be changed by an agreement of shareholders of a closed
corporation. Another feature of this type of shareholders' agreement is the fact
that it is concluded only between all members of a closed corporation. It is the
participation of all members of the corporation in the agreement that removes
the question of the legality of this third type of shareholders' agreement.
Mandatory participation of all members of a closed corporation in the third type
of shareholders' agreement was provided for by the model law on a business
corporation and was not subject to change by state laws when implementing the
model law into state legislation. In general, these three types of shareholders'
agreements in all states, with some exceptions, are regulated by laws uniformly.
In fairness, it should be noted that this regulation is very brief. The stinginess of
the legislative regulation of shareholders' agreements is due to the fact that
legislators have not yet decided on a contractual model of shareholders'
agreements. It is noteworthy that all the rules governing shareholder
agreements are included in the laws on business corporations. It is the laws
related to corporate law that determine the types, procedure for concluding and
terminating shareholder agreements, as well as their terms and relationship
with the provisions of the corporation's charter and regulations. Neither the
laws governing contractual relations, nor the Uniform Commercial Code, and
subsequently the commercial codes of the states, contain any indication of
extending their effect to shareholder agreements. The fact is that two
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contractual models still coexist in the legislative practice of individual US states.
The process of their convergence is intensive, but unification has not yet
occurred. Legislators and courts have not yet decided on which contractual
model a shareholder agreement is based on. This circumstance largely explains
the fact that the provisions of contract law do not apply to shareholder
agreements. On the one hand, it is obvious that a shareholder agreement is the
result of the coordination of the wills of its participants, without reaching an
agreement between whom its conclusion is impossible. This clearly
demonstrates the legal nature of the contract as an agreement that complies
with the European contractual model, and, consequently, the rules governing
business contracts, which are also based on the European contractual model,
may apply to it.
On the other hand, neither legislators nor courts yet classify shareholders'
agreements as business contracts, much less as contracts of the English
contractual model of shareholders' agreement. Let us recall that the English
contractual model is a contract based on mutual promises of the parties,
supported by judicial protection. We assume that the presence of two
contractual models in contract law prevents the full extension of the provisions
of the legislation on contracts to the shareholders' agreement, leaving it in the
sphere of corporate regulation.
Thus, a comparative analysis of judicial practice, doctrine and provisions of
the legislation of the USA and France allows us to draw the following
conclusions:
in the USA, shareholders' agreements are regulated by corporate law, and
not by the provisions of contract law;
in France, shareholders' agreements are regulated by the provisions of the
law of obligations, while the legal consequences of this agreement have specifics,
go beyond the scope of a civil obligation and are of a corporate nature.
Based on the above text, several key conclusions can be made regarding the
management structure of entrepreneurial corporations in the USA and the role
of shareholders in these processes:
1. Removal of shareholders from day-to-day management:
In traditional business corporations, shareholders do not participate in day-
to-day management decisions. All management powers are concentrated in the
hands of the board of directors and the managers appointed by them.
Shareholders can only receive dividends and form the board of directors, but do
not influence the day-to-day operations of the company.
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2. Historical development of shareholder rights:
Initially, shareholders had limited rights: only the right to receive profits
(dividends) and the right to form the board of directors. However, over time,
this structure was changed in response to shareholder interests, which led to the
creation of laws regulating the activities of corporations and strengthening
shareholder rights.
3. Closed corporations as a special case:
Closed corporations, unlike regular business corporations, allow
shareholders to have more influence over management and profit distribution.
In closed corporations, shareholder agreements can change the corporation's
bylaws, including the procedure for management and profit distribution. This
difference gives shareholders more control and influence over strategic
decisions. 4. Shareholders' Agreements:
US state laws provide for several types of shareholders' agreements, which
can vary significantly depending on the type of corporation. For closed
corporations, shareholders can enter into agreements that change the
established rules for management and distribution of profits, which is not
allowed in public corporations. Such agreements can set out terms that allow
shareholders to control the voting procedure and manage corporate processes
more flexibly.
5. The Role of the General Meeting of Shareholders:
Under US law, the general meeting of shareholders is not considered a
corporate governance div, although it decides on important issues such as the
election of the board of directors and the approval of major transactions (e.g.
mergers, liquidations, and asset sales). It is important to emphasize that for
regular corporations, shareholders' rights are limited at this level, and their
influence on operational management remains minimal.
6. Prospects for Changes and Development of Shareholders' Rights:
Despite the expansion of shareholders' rights, legislators do not give them
full control over the operational management of corporations. This leads to a
further division of shareholders' agreements for different types of corporations.
For closed corporations, shareholders can influence processes at a higher level,
while for entrepreneurial corporations, shareholders remain limited in their
influence on management issues.
Conclusion:
Thus, the main conclusions from the text are as follows:
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The management system in traditional corporations does not imply active
participation of shareholders in operational management, which limits their
rights in decision-making.
Closed corporations give shareholders more rights to change the order of
management and distribution of profits, which allows them to more effectively
control the company's activities.
Shareholder agreements play a key role in changing the legal relations
between shareholders, and these agreements can vary significantly depending
on the type of corporation.
Legislation continues to evolve, directing shareholders to more active
participation in corporate management, especially in closed corporations, but
they are still limited in their powers in traditional entrepreneurial corporations.
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